On the plus side the DFS indicates that there is a good business case to proceed with the mine at current tin prices and with a rate of return of about 23% .
The projected life of the mine is also good, at 10 years+, with every likelihood that that figure will be extended with more exploration.
The DFS also gives an NPV of about US $90 million for the project.
On the down side there is the need to raise, coincidentally, about US $90 million to build the mine. That presumably involves some combination of debt and equity, which is where the subject gets interesting.
Let's, safely, assume that no lender will put in 100% of the required funds and will want to see at least a 50% equity.That would mean that the joint venture partners would have to raise US $45 million between them. KAS owns 75% of the joint venture, so KAS's share is $33.75 million.
The next question is whether or not the other joint venture partners will fund the other 25% of the required funds. And if they do not what does the joint venture agreement say about that?
Can KAS go ahead without them, raise more funds and effectively dilute them? We do not know.
As for KAS's share of the required funds, can it raise $33.75 million from its shareholders?
The current Market Cap is about AUS $15 million, so each existing shareholder would, on average, need to more than double their existing investment and, if they did not, new shareholders would need to be recruited to make up the shortfall.
So, is the NPV and 23% return sufficiently enticing for this to happen? And at what price would new shares need to be issued to make a Capital Raising successful?
One would expect that the Board should get a loan approval first before approaching the shareholders, because no one is going to kick in more funds on spec. No doubt shareholders would want to know that if any more funds were given to the company they would only be used to fund a mine that was guaranteed to go ahead.
What would the Board's response be to these questions?
KAS Price at posting:
1.3¢ Sentiment: Buy Disclosure: Held
